Question: Why is textbook becoming more expensive, but textbook expenditure becomes lower? How could that possibly be?
Price elasticity of demand is the measure of price responsiveness:
\[\text{Price Elasticity of Demand} = \frac{\text{\% change in Q}}{\text{\% change in P}}\]
Example: If the price of oil increases by 10% and the quantity demanded falls by 5%, then the price elasticity of demand for oil is:
\[\frac{-5\%}{10\%} = -0.5\]
There is a problem: Our percent change calculation depends on our choice of starting point.
Example: Gasoline costs three times as much per gallon in Europe as it does in the United States. What is the percent difference between American and European gas prices? It depends on which way you measure it:
\[\text{\% change in X} = \frac{\text{Change in X}}{\text{Average Value of X}} \times 100 \] \[\text{Average Value of X} = \frac{\text{Starting Value of X + Final Value of X}}{2}\]
Example: At the initial price of $10, the quantity demanded is 100. When the price rises to $20, the quantity demanded is 90.
Find the price elasticity of demand.
\[\text{\% Change in price} = \frac{20-10}{\frac{10+20}{2}} \times 100\% = 66.6\%\]
\[\text{\% Change in quantity demanded} = \frac{90-100}{\frac{100+90}{2}} \times 100\% = -10.5\%\]
\[\text{Price elasticity of demand} = \frac{10.5\%}{66.6\%} = 0.16\]
If the price of a sushi roll drops from $8 to $4 and sales rise from 20 to 40 units, what is the absolute value of the price elasticity of demand using the midpoint formula?
A good can have a price elasticity as low as zero or as high as infinity.
## Why do
economists care so much about elasticity? * Pricing strategy - How
should companies set prices (if they have the ability to do so)? *
Taxation theory - How should government implement effective tax
instruments?
What is the elasticity of:
What is the elasticity of: * Bottled water * Gasoline
It feels cheaper when we spend a smaller share of income on the good.
It feels more expensive when we spend a greater share of income on the good.
Daily commute
Apartment
When the patent expires on a brand-name drug and five generic drugs come on the market, what happens to elasticity of demand for the original drug?
Here is (an incomplete) list of Super Bowl Commercials. What do these products have in common?
https://en.wikipedia.org/wiki/List_of_Super_Bowl_commercials#2023_(LVII)
Here is a list of other products that never shows during Super Bowl:
Total revenue: price times quantity sold. \[TR = P \times Q\]
When a seller raises the price of a good, there are two countervailing effects:
The elasticity of demand for eggs has been estimated to be 0.1. If egg producers raise their prices by 10%, what will happen to their total revenue?
(To read this: X elasticity on Y = \(\frac{\text{\%change in }Q_y}{\text{\%change in }P_x}\))
The cross-price elasticity of demand measures how sensitive the quantity demanded of good A is to the price of good B.
Cross-price elasticity of demand = \(\frac{\text{\%change in quantity demanded of A}}{\text{\%change in price of B}}\)
The price of good B increases by 4%, causing the quantity demanded of good A to decrease by 6%. The cross-price elasticity of demand is _____, and the goods are ______.
The income elasticity of demand measures how sensitive the quantity demanded of a good is to changes in income.
Income elasticity of demand = \(\frac{\text{\%change in quantity demanded}}{\text{\%change in income}}\)
The income elasticity of demand can be used to distinguish normal from inferior goods.
Tonya consumes 10 boxes of ramen noodles a year when her yearly income is $40,000. After her income falls to $30,000 a year, she consumes 40 boxes of ramen noodles a year. Calculate her income elasticity of demand for ramen noodles using the midpoint method.
Usually, sellers offer more when prices are higher, but how strong is that relationship?
Similar to price elasticity of demand:
\[\text{Price Elasticity of Supply} = \frac{\text{\% change in } Q_s}{\text{\% change in P}}\] ##
Who really bares the burden of increasing production cost due to the bird flu?
